Selling a UK Rental Portfolio Under the Renters' Rights Act 2025: The Tax Decision Stack
· Property Tax Partners Editorial Team · 11 min read
The Renters' Rights Act 2025 has not made portfolio disposal mandatory, but it has materially tightened the commercial case for many landlords. The rent-rise frequency cap interacts with the unchanged Section 24 finance-cost restriction in a way that compresses post-tax yield. The Decent Homes Standard extension to the PRS adds a compliance refit cost across older stock. The new £40,000 civil-penalty regime under section 15 plus Schedule 5 of the Act adds operational risk. And the 12-month re-letting restriction on Ground 1A landlord-sale possession (Schedule 1 amended Ground 1A) creates a hard CGT-completion timing pressure: a landlord taking vacant possession under Ground 1A who then fails to complete the sale within 12 months is exposed to a £40,000 penalty under section 15. This page is the commercial decision page for landlords weighing exit. It sets out the four pressure drivers, walks the Ground 1A mechanic + the 12-month completion window, covers the CGT exit stack (rates, 60-day reporting under Schedule 2 FA 2019, AEA stacking via phased disposal, NRCGT for non-resident sellers), addresses the Section 24 final-year interaction with worked numbers, and runs an anonymised 5-property portfolio worked example showing a phased 2-year exit against a single-year exit (£18,400 saving on the same gross gain). It then walks the four standard alternative routes (incorporation, share-sale FIC, gift into trust, hold-to-death IHT uplift) at the framing level only; each is covered in depth in dedicated companion pages.
The Renters' Rights Act 2025 has not made portfolio disposal mandatory but it has materially tightened the commercial case for many landlords. The rent-rise cap, the Section 24 finance-cost restriction, the Decent Homes Standard refit cost, the £40,000 civil-penalty regime, and the 12-month re-letting restriction on Ground 1A landlord-sale possession have stacked simultaneously through the first half of 2026. The marginal small-portfolio landlord (3 to 6 properties) is the cohort most clearly weighing exit. This page is the tax decision stack for that cohort.
The exit decision sits at the intersection of four pressures that became operative through Q2 2026.
1. The Section 13 rent-cap meets Section 24
Section 6(7) of the RRA 2025, inserting Housing Act 1988 section 13(4A), makes rent increases on assured tenancies available only via the statutory section 13 procedure (once per 12-month period, with the FTT challenge route under section 14). Contractual rent-review clauses are unenforceable from 1 May 2026 forward. Section 24 of the Finance (No. 2) Act 2015 restricts the relief on finance costs to a basic-rate tax credit (20%) rather than an above-the-line deduction. The interaction: where finance costs rise faster than the section 13-permitted annual rent increase, the higher-rate landlord (40% income tax) sees finance-cost-relief halved (from 40% to 20%) on the rising portion of interest, AND cannot recover the gap by raising rent more than annually. The compound effect compresses post-tax yield.
2. The Decent Homes Standard refit cost
Part 3 of the RRA 2025 extends the Decent Homes Standard to the PRS. The framework provisions are in force from 27 December 2025 under SI 2025/1354. The substantive standard (Type 1 and Type 2 requirements via the Secretary of State's regulations) is pending but anticipated before April 2027. Older stock (pre-1980 typical 'two key components in poor condition' fact pattern) will require a refit cycle to pass the anticipated four-limb test. The cost ranges from £8,000 for a kitchen-and-thermal-comfort upgrade on a small flat to £30,000+ for a Victorian-terraced full-refurbishment. The deductible portion (revenue maintenance) reduces this year's tax bill at the marginal rate; the capital portion (improvement) is recovered only on eventual sale. Where the refit cost exceeds the expected uplift in market value, the rational move is dispose-as-is rather than refit-and-hold.
3. The civil-penalty regime under section 15 + Schedule 5
Section 15 of the RRA 2025 with the penalty schedule at Schedule 5 establishes a £40,000 ceiling on civil penalties for housing offences from 1 May 2026 (up from the £30,000 ceiling under the Housing and Planning Act 2016 framework for pre-May offences). New offence categories include breach of the 12-month re-letting prohibition on Ground 1A / Ground 1B possession, marketing without a database entry once Chapter 3 of Part 2 commences, non-membership of the Landlord Redress Scheme once the substantive Chapter 2 commences. The compliance cost of staying within the new regime is modest in absolute terms; the operational risk for the marginal landlord without management infrastructure is what tips the marginal exit decision. Detailed mechanics in our civil penalty defence guide and our tenancy template page linked below.
4. The 12-month re-letting restriction on Ground 1A
Schedule 1 amended Ground 1A allows the landlord to take possession on the landlord-sale ground with four months notice; the property cannot then be re-let for 12 months from the date possession is obtained. This is the operational pivot for the exit decision: the landlord needs to align the Ground 1A possession date with the conveyancing completion date such that completion happens within the 12-month window. Where the sale process is fully de-risked (offer accepted, finance evidenced, conveyancing in train) before notice is served, the alignment is straightforward; where notice is served on a vacant-marketing speculation, the 12-month deadline becomes a hard pressure. See the timing section below.
The Ground 1A Possession Route and the 12-Month CGT-Completion Window
The mechanic is procedurally simple but the timing is unforgiving. The landlord serves a Ground 1A section 8 notice (four months' notice; cannot serve in the first 12 months of the tenancy). Once possession is obtained (either by tenant departure within the notice period or by court order if the tenant remains), the 12-month re-letting prohibition starts.
Event
Date (anchor T = notice service)
Note
Section 8 Ground 1A notice served
T
4-month notice period; cannot be served in first 12 months of tenancy
Tenant departure deadline
T + 4 months
If tenant leaves, possession date = departure date
If tenant remains: court proceedings issued
T + 4 months
Possession-claim window then runs through county court
Sale must complete within 12 months OR property held vacant beyond 12 months
CGT disposal date for charging purposes
Exchange date
TCGA 1992 s.28
60-day CGT reporting deadline
Completion date + 60 days
FA 2019 Sch 2
The critical-path window from Ground 1A notice service to CGT-completion deadline is therefore 16 to 20 months total. Sessions advising landlords on a Ground 1A timeline should not serve notice until the conveyancing critical path has been modelled against the 12-month deadline; serving notice on a speculative sale and then failing to find a buyer within the window leaves the landlord with the binary choice of holding vacant (operating-cost continuing, no rental income) or re-letting (£40,000 penalty exposure). The disciplined posture is to either secure an offer-in-principle before serving notice, or accept a longer hold-to-sale window with no Ground 1A pressure (the property continues to be tenanted; sale happens with the tenant in situ, accepting the market-value discount that brings).
The CGT Exit Stack
Residential-property CGT rates from 30 October 2024 are 18% (basic-rate band) and 24% (higher and additional-rate bands). The Annual Exempt Amount is £3,000 per individual for 2025/26 and 2026/27. The 60-day CGT reporting deadline under Schedule 2 of the Finance Act 2019 runs from completion (not exchange). Non-resident sellers pay NRCGT at the same rates under Schedule 4ZZA TCGA 1992 with the same 60-day deadline. Incidental costs of disposal are deductible under TCGA 1992 s.38(1)(c).
For the RRA-2025-trigger exit, the CGT mechanic itself is unchanged; the planning angle is on the timing and sequencing. Three load-bearing planning moves:
AEA stacking via phased disposal
Each tax year the landlord (and the spouse for joint-owned property) has a £3,000 AEA. A 5-property portfolio disposed of in a single tax year uses one AEA; the same portfolio disposed of 2 in year 1 and 3 in year 2 uses two AEAs. At the 24% higher rate, the second AEA shields £720 of tax (£3,000 x 24%). Over a 3-year phased exit the AEA shielding is £2,160 per individual or £4,320 for joint owners. The trade-off is exposure to ongoing rental income (positive or negative depending on net-of-tax yield) and market-movement risk on the later disposals.
S24 final-year interaction
The year of disposal terminates the rental business for the property in question. Any unrelieved Section 24 finance-cost credit carried forward (where the basic-rate credit in the year exceeded the tax liability available to absorb it) is lost on cessation of the rental business under ITTOIA 2005 (no carry-forward of unused S24 credit beyond the rental business). For landlords sitting on substantial accumulated S24 surplus credits, the final year of the rental business should ideally include enough remaining rental income to absorb the carried-forward credit; sequencing the exit such that the final disposal completes after the close of a tax year with sufficient rental income is the technical fix. The detailed mechanics are in our mortgage interest deductibility page linked below.
Spouse-split CGT planning
Inter-spouse transfers under TCGA 1992 s.58 are 'no gain, no loss' transactions: the receiving spouse takes the property at the transferring spouse's base cost. Pre-disposal, a property in a single name can be transferred to joint names (typically 50/50) without triggering CGT; the subsequent sale then uses two AEAs and stacks the gain across two basic-rate / higher-rate boundaries. The structuring is well-trodden and is normally completed via a Form 17 declaration to HMRC where the joint ownership is unequal. Stamp Duty Land Tax should be considered on the transfer where there is consideration (typically there is none on a spouse gift, but a mortgage assumption can constitute consideration). The complete spouse-split CGT mechanic is in the BTL CGT calculation guide linked above.
Worked Example: 5-Property Portfolio, Phased vs Single-Year Exit
An anonymised illustration. A landlord owns 5 buy-to-let flats across two English cities, held in personal name only. Total base cost £1,200,000 (acquired between 2008 and 2014). Current market value £2,000,000 (60 to 70% gain across the portfolio). Total mortgage £600,000 outstanding (refinanced 2024 at 5.4% on 5-year fix). Higher-rate income taxpayer. All 5 properties currently let on assured periodic tenancies post-1 May 2026 conversion. Annual gross rent £64,000; net rental profit before S24 and finance cost £42,000.
The landlord weighs two exit routes:
Route A: Single-year disposal in 2026/27
All 5 properties disposed of via Ground 1A possession (4-month notices served June 2026, possession obtained October-December 2026, sales completing March 2027).
Total gain: £800,000.
One AEA: £3,000.
Chargeable gain after AEA: £797,000.
Incidental costs of disposal (agent fees at 1.5%, conveyancing £2,500 x 5, marketing £3,000): £37,500.
Net chargeable gain: £759,500.
CGT at 24% (entire gain in higher-rate band after stacking on income): £182,280.
Final-year rental income absorbing carried-forward S24 credits: limited (the £42,000 net rental profit before finance cost in 2026/27 absorbs some, but accumulated S24 surplus from prior years is lost at cessation).
Total tax cost of exit: £182,280.
Route B: 2-year phased disposal (2026/27 and 2027/28)
2 properties disposed of in 2026/27 (gain £320,000); 3 properties in 2027/28 (gain £480,000).
Two AEAs across the cycle: £6,000.
Chargeable gain after AEAs: £794,000.
Incidental costs same: £37,500.
Net chargeable gain: £756,500.
CGT at 24%: £181,560.
AEA-only saving versus Route A: £720.
BUT: the final-year S24 credit absorption is preserved across two years; remaining rental income in 2026/27 (3 properties still let) absorbs more of the accumulated S24 surplus, reducing the effective lost-credit cost by an estimated £4,800 over the cycle.
AND: spouse-split prior to disposal (assume done in 2026/27 for the 2027/28 cohort) adds a second AEA for 2027/28: further £720 saving.
AND: where the spouse is in a different income tax band, some of the 2027/28 gain is taxed at 18% basic-rate CGT rather than 24%; estimated saving £12,000 to £18,000 depending on the spouse's other income.
Total estimated saving Route B vs Route A: £18,400 to £24,400 across the cycle.
The structural reading: the spouse-split + phased disposal combination is the single largest tax-planning lever on a portfolio exit at this scale. The phased timing also reduces the operational risk of mis-aligning Ground 1A possession dates with conveyancing critical paths (two cycles of 2-3 properties is more manageable than one cycle of 5). The trade-off is 12 months of additional market-movement exposure on the 2027/28 cohort; landlords with strong views on market direction should factor that in.
The Four Standard Alternatives (Framing Level)
The exit-or-hold decision is rarely binary. The four standard alternatives, set out at framing level only (each is covered in dedicated companion pages on the site):
Route
When it works
Key friction
Incorporation (S162)
Active-lettings-business test met; long-term hold + extraction planning
SDLT exposure on transfer; corporate mortgage refinancing 0.5-1.0% higher
Property in estate at 40% IHT; lifetime opportunity cost of holding
Each route changes the tax stack materially and each has substantial set-up frictions. The decision is rarely 'sell' versus 'incorporate' in isolation; it is normally a sequence with multiple decision points and stakeholder inputs. Specialist tax counsel is the appropriate channel for the modelling.
Decision Framework Summary
The exit-or-hold decision under the RRA 2025 regime turns on five questions. Working through them in order produces a cleaner planning posture than diving straight into CGT mechanics.
What is the post-tax yield on each property? Calculate gross rent minus operating costs minus S24-restricted finance cost relief minus marginal income tax. If the post-tax yield is below the landlord's cost of capital (typical 4 to 6% for a portfolio investor; lower for a passive holder), the property is a candidate for exit.
What is the refit cost to pass the anticipated Decent Homes test? Survey the older stock. Where the refit cost (capital + revenue) exceeds the expected uplift in market value, dispose-as-is is the rational call.
What is the unrealised gain and what is the CGT on disposal? Calculate at 18% / 24% by reference to base cost and current market value. Layer in incidental costs, AEA, and any spouse-split planning.
What is the alternative-route position? Incorporation, FIC, trust, or hold-to-death each have a specific fact pattern. Where one of them is materially better than straight disposal on the landlord's personal circumstances, plan around it.
What is the Ground 1A timing window? If the property is currently tenanted and the landlord wants vacant-possession sale, the Ground 1A four-month notice + 12-month re-let-prohibition + conveyancing timeline is the critical path. Model it before serving notice.
The structural reading: the RRA 2025 has not changed the underlying CGT mechanics, NRCGT framework, or the cap-versus-revenue boundary. What it has changed is the operating economics of the rental business sufficiently that more landlords are now arriving at the exit-or-restructure question than were doing so two years ago. The tax planning around the exit, where the answer is exit, is the same planning that has applied for decades. The change is in the volume of landlords now reaching that planning conversation, not in the planning itself. Our team is currently advising portfolio landlords across all five routes; the worked example above is a representative case, not an isolated one.
Frequently asked questions
Why are landlords selling rental portfolios now rather than waiting?
Four pressures stacked simultaneously through the first half of 2026. First, the Section 13 rent-rise cap (once per 12-month period, market-rate maximum) interacts with the Section 24 basic-rate-credit restriction on mortgage interest: where rates have risen but contractual rent-review clauses are now unenforceable (section 6(7) RRA 2025 inserting HA 1988 s.13(4A)), the gap between rising finance cost and capped rental income compresses faster than the landlord can recover it through the statutory route. Second, the Decent Homes Standard extension to the PRS (Part 3 RRA 2025, framework in force from 27 December 2025; substantive regulations pending) creates a refit cost across older stock that the landlord must either absorb or use to trigger a disposal. Third, the new financial-penalty regime (up to £40,000 per offence under section 15 + Schedule 5) adds operational risk for the marginal landlord. Fourth, the structural compliance set-up (PRS Database registration once Chapter 3 of Part 2 commences; Landlord Redress Scheme membership under the pending part of Chapter 2) adds recurring cost. The compound effect is that the marginal small-portfolio landlord (3 to 6 properties) is the cohort most likely to weigh exit, not the large-portfolio operator with management infrastructure to absorb the compliance load.
Can I evict a tenant just to sell the property under Ground 1A?
Yes, but with structural constraints. Ground 1A of Schedule 1 to the Housing Act 1988 (as amended by Schedule 1 to the RRA 2025) gives the landlord a mandatory possession ground where the property is to be sold. The notice period is four months. The ground cannot be used in the first 12 months of the tenancy (so a tenant who has been in for less than 12 months at the date of the section 8 notice is protected). After possession on Ground 1A, the landlord cannot re-let the property for 12 months from the date possession is obtained. Breach of the 12-month re-let prohibition is a section 15 + Schedule 5 offence with a civil penalty up to £40,000. The combined effect: the landlord can take possession to sell, but is committed to a 12-month window in which the property must either be sold or held vacant. Where the sale falls through or the market softens, the landlord faces a 12-month income gap. This is why Ground 1A possession should not be served until the sale process is materially de-risked (offer accepted, finance evidenced, conveyancing in train). The detailed possession mechanics are covered in our companion page on Section 21 abolition and the reformed Section 8 process linked below.
What is the 12-month re-letting restriction and how does it interact with CGT?
Schedule 1 amended Ground 1A creates a 12-month prohibition on re-letting the property after possession is obtained on the landlord-sale ground. The CGT interaction is the timing pressure. The landlord takes possession (start of the 12-month window), markets the property, accepts an offer, exchanges contracts, completes. The disposal date for CGT purposes is the exchange date under TCGA 1992 (unless conditional, when it is the conditions-satisfied date). The 60-day CGT reporting obligation under Schedule 2 of the Finance Act 2019 runs from the completion date, not exchange. Where the landlord exchanges within the 12-month window but completes outside it (rare on residential, but possible on chain-dependent or new-build conveyancing), the disposal is still treated as having occurred at exchange; the 12-month re-let prohibition is satisfied by exchange. Where the landlord cannot achieve exchange within the 12 months, the safe options are (a) take the property off the market and hold it vacant for the remainder of the 12 months (income gap; deductible operating costs continue), or (b) re-let after 12 months and accept that the original Ground 1A justification has lapsed (no penalty if 12 months have elapsed). Sessions advising on a Ground 1A timeline should model the conveyancing critical path against the 12-month deadline before serving notice.
What CGT rates apply to residential property disposals in 2026/27?
18% for basic-rate taxpayers (to the extent the gain falls within the basic-rate income tax band when stacked on top of taxable income); 24% for higher-rate and additional-rate taxpayers. The 24% higher rate applied from 30 October 2024 (Autumn Statement 2024 cut from the previous 28%); the 18% basic-rate rate has been the residential-disposal rate for several years. Companies pay corporation tax (19% small profits rate, 25% main rate, with marginal relief between £50,000 and £250,000) on chargeable gains under TCGA 1992 with no separate CGT rate. Non-resident sellers pay NRCGT at the same 18% / 24% rates on disposal of UK residential property under Schedule 4ZZA TCGA 1992. The Annual Exempt Amount for 2025/26 and 2026/27 is £3,000 per individual; spouses each have their own AEA, which is the basis for the joint-ownership planning point covered below.
When do I need to file my CGT return after exchange?
Within 60 days of the completion date, under Schedule 2 of the Finance Act 2019. Note: the trigger is completion, not exchange (despite the disposal date for charging purposes being exchange under TCGA 1992 s.28). The 60-day return is the Capital Gains Tax on UK property return filed through the HMRC online service, with the CGT due paid by the same deadline. Where the landlord is also within Self Assessment, the disposal is reported again on the SA return for the tax year of disposal; any difference between the 60-day return and the SA return is reconciled at SA filing. Late filing of the 60-day return triggers FA 2009 Sch 55 penalties (£100 immediate, daily penalties from day 90, with 5% / £300 surcharges at 6 and 12 months). Non-resident sellers face the same 60-day deadline under the NRCGT regime. Detailed mechanics are covered in our companion page on CGT payment deadlines linked below.
Can I split the disposal across two tax years to use two AEAs?
Yes for a multi-property portfolio; partially yes for a single property held jointly. The Annual Exempt Amount is £3,000 per individual per tax year (2025/26 and 2026/27). A landlord with a 5-property portfolio disposing of all 5 in 2026/27 uses one AEA against the aggregate gain. The same portfolio disposed of as 2 properties in 2026/27 and 3 in 2027/28 uses two AEAs (one in each year); the second AEA shields £3,000 of gain at the marginal CGT rate, worth £720 at the 24% higher rate. Joint-owned property between spouses gets two AEAs in the year of disposal as a matter of course. For larger portfolios, a 3 or 4-year phased exit can shield £9,000 to £12,000 of gain at £720 per AEA = £2,880 over the cycle. The trade-off: phased exit prolongs exposure to the rental income (which may be a positive or negative depending on net-of-tax yield) and exposes later disposals to market-movement risk. Detailed modelling is in the worked example below.
If I sell while still non-resident, what's my CGT position?
NRCGT applies under Schedule 4ZZA TCGA 1992 at the same 18% / 24% rates as resident sellers. The chargeable gain is measured from 6 April 2015 (the original NRCGT introduction date for residential property) or the acquisition date if later, OR by reference to the original acquisition date with a time-apportioned formula if the property was held before April 2015. Non-resident individuals get the same £3,000 AEA. The 60-day reporting deadline applies; the NRCGT return is filed through the HMRC online service. Where the non-resident landlord is within the Non-Resident Landlord scheme for rental income, the CGT position is administered separately from the NRL scheme. Sessions advising non-resident landlords on exit should also consider the temporary non-residence rules in TCGA 1992 s.10A: a UK leaver who disposes of property while non-resident and then returns to the UK within 5 years of leaving can be treated as having made the disposal in the year of return, triggering a UK CGT charge regardless of the non-resident period. Detailed mechanics in our non-resident CGT page linked below.
Is incorporation a viable alternative to portfolio sale?
Yes for some portfolios but with three substantial frictions. The S162 incorporation relief under TCGA 1992 s.162 can defer the CGT charge on transfer of properties to a company in exchange for shares, where the lettings constitute a 'business' (broadly: 20+ hours per week of active letting management, supported by Ramsay v HMRC [2013] and HMRC's practice). The SDLT exposure on the transfer can be partial-relief or full-charge depending on partnership / partnership-incorporation structuring; multiple dwellings relief and partnership relief routes are available but technical. The third friction is the personal mortgage to corporate mortgage refinancing required as part of incorporation, with typical company BTL rates 0.5% to 1.0% higher than personal BTL rates and higher set-up costs. Incorporation is most attractive for portfolios where (a) the S162 business test is met, (b) the SDLT exposure is structured into relief, (c) the landlord plans to retain and grow the portfolio rather than exit, and (d) the long-term inheritance-and-extraction planning benefits from corporate-structure features (FIC variant). It is rarely a clean substitute for a straight exit-and-cash decision. Our incorporation cluster covers the detailed mechanics.
What about gifting properties into trust instead of selling?
Available via the s.165 TCGA 1992 holdover relief for gifts of business assets, with the gift triggering an immediate IHT charge to the extent the cumulative 7-year value exceeds the £325,000 nil-rate band (plus £175,000 RNRB where applicable). The trust route works for landlords whose primary objective is intergenerational wealth transfer rather than cash extraction, and where the long-term rental income stream is wanted by the trust beneficiaries. The frictions: the IHT charge on the gift is at 20% above the nil-rate band on creation of a relevant property trust; the trust then carries 10-yearly periodic charges and exit charges; the trustee compliance overhead is substantial; and the trust holding does NOT escape the underlying RRA 2025 compliance burden (the trust is the landlord, with the same Decent Homes / PRS Database / Ombudsman / Ground 1A constraints as the original individual landlord). The trust route is therefore an estate-planning play rather than a compliance-escape play. Specialist tax counsel is essential before commitment.
How does Section 24 affect the 'should I sell?' math?
Section 24 restricts the relief for finance costs (mortgage interest, broker fees, loan arrangement fees, refinancing fees) on residential lettings to a basic-rate (20%) tax credit rather than an above-the-line deduction. For higher-rate (40%) taxpayers and additional-rate (45%) taxpayers this halves or more-than-halves the effective tax relief on interest. The interaction with the RRA 2025 rent-cap is the binding pinch point: a landlord on a refinanced 5-year fixed mortgage at (say) 5.5% on a property generating £18,000 gross rent, where the previous rate was 2.5%, sees finance cost rise by 3% on the mortgage principal. If the mortgage is £200,000, the cost rises by £6,000. Under the pre-S24 framework the deduction would have produced £2,400 of tax relief at higher rate; under S24 it produces only £1,200 (basic-rate credit on the £6,000). The rent-cap means the landlord cannot recover the gap by raising rent more frequently than annually under section 13. Where the gap persists, the post-tax cash yield drops materially and the disposal calculus tips toward exit. The combination of S24 + Section 13 cap is the strongest single commercial driver of the current portfolio-disposal wave.
Are Furnished Holiday Lettings anti-forestalling rules still relevant after April 2025?
Marginally. The FHL regime was abolished by FA 2024 with effect from 6 April 2025; pre-existing FHL properties moved to the standard property-business regime from that date. The anti-forestalling rules (introduced in 2024 to prevent acceleration of FHL benefits before abolition) caught certain pre-April-2025 transactions designed to lock in FHL treatment for capital-allowances or CGT purposes. From April 2026 the relevance is residual: a former-FHL property being disposed of in 2026/27 follows the standard residential-CGT framework (18% / 24% rates) regardless of its FHL history; capital allowances claimed before April 2025 may have residual disposal-value calculations on the sale. Where the property was a former FHL and is now being sold as part of the RRA-2025-trigger exit, the disposal is mechanically simple but the historic FHL position needs verification (any unrelieved allowances; any rollover relief claimed against FHL gains). Specialist review is the safer route for former-FHL portfolios at exit.
Are legal and agent fees on the sale deductible against the gain?
Yes, as 'incidental costs of disposal' under TCGA 1992 s.38(1)(c). The deductible items: estate agent fees (typically 1% to 2% of sale price plus VAT), solicitor / conveyancer fees on the sale (typically £1,200 to £3,000 depending on complexity), advertising and marketing costs, valuation fees commissioned for the sale, EPC commissioning costs for the sale (where the existing EPC has expired). Where the property is held in a company structure, the equivalent costs are deductible against the corporation tax computation under similar trading-profit principles. Costs of putting the property into a sale-ready condition (cosmetic refresh, minor repairs, decorating to staging standard) are NOT incidental costs of disposal: they are revenue costs of the rental business (deductible against rental income up to cessation of the lettings) or capital costs (added to base cost under TCGA 1992 s.38(1)(b) if they are improvements rather than repairs). The cap-versus-revenue distinction continues to apply at the exit; the underlying framework is covered in our HMO licensing fees deductibility guide and our pre-letting expenses guide.
What if the property is unlettable due to Decent Homes non-compliance?
The disposal calculus is materially different. An unlettable property cannot generate rental income, so the S24 pressure is moot; the rent-cap is moot; the 12-month re-let restriction on Ground 1A is moot (because the landlord cannot re-let it anyway). The relevant pressures collapse onto the Decent Homes compliance cost (refit to lettable standard versus dispose-as-is) and the CGT on the eventual sale. Where the refit cost exceeds the property's expected uplift in market value, the rational decision is to sell as-is at the unrefurbished price and apply the CGT framework on the unimproved disposal. Where the refit cost is recoverable in the eventual sale price + the post-refit rental income over a defined hold period, the refit-and-hold route may be worthwhile. The Decent Homes compliance framework + cap-vs-revenue split on the refit spend is covered in our Decent Homes compliance checklist linked below; the 1920s terraced worked example in that page is directly applicable to this scenario.
Can I hold the property to death for the IHT uplift on base cost?
Yes; the CGT-uplift-on-death rule under TCGA 1992 s.62 re-bases the property to its market value at the date of death for CGT purposes, eliminating any unrealised capital gain accrued during the deceased's lifetime. The estate then either holds the property (deferring further CGT until eventual sale by the executors or beneficiaries) or sells it (with CGT computed against the death-date base cost only). The IHT consequences are the trade-off: the property's market value at death is part of the estate for IHT, taxed at 40% above the nil-rate band (£325,000) plus residence nil-rate band (£175,000 where the residence is left to a direct descendant, subject to the £2 million taper). The hold-to-death strategy is rational for landlords whose primary objective is asset transfer to children, who can absorb the lifetime opportunity cost of holding rather than selling, and whose marginal CGT-saving from the uplift exceeds the marginal IHT cost of the property being inside the estate at death. The calculation is fact-specific; for portfolios above the IHT thresholds the answer is often that the IHT cost exceeds the CGT saving and the lifetime disposal route is preferred. Specialist estate-planning review is essential before committing to either route.
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